Hi,
Can someone explain me the difference between these two formulas to get to FCF please?
EBIT * (1-t) + D&A - Change in WC - Capex
EBITDA - taxes - Change in WC - Capex
Thank you
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I like to think of formula 1 as being your textbook/CFI formula and formula 2 as the real-life use case.
Remember, you're looking to find the actual cash flowing into the business. You take your operating profit with the non-cash add-backs, and minus off the tax that was actually paid off. Further subtract your capex and the changes in NWC and you get to your cash flow.
I've only ever really used formula 1 as an undergrad if for whatever reason I couldn't find the exact tax paid out each year.
Thank you, do I understand correctly that EBITDA - actual taxes paid + non-cash add backs is a proxy for cash flow from operations? i.e if I have access to the cash flow statement of a company, instead of using the formula above, shall I take the cash flow from operations reported by the company and substrat capex to get to FCF?
UFCF don’t include one time expenses, so you don’t include any one time non cash if that’s what you’re asking. If you’re asking if you add back non cash like depreciation no you do not. The actual tax paid in cash includes the cost savings from depreciation so you don’t need to add back anything.
It’s just EBITDA - Tax Paid in cash - change in WC - Capex
If it’s levered free cash flows it’s EBITDA - Interest Cash - Tax Cash - change in WC - Capex -/+Change in debt repayments (if the pay down is more than the drawdown you subtract, if it’s less, than you add the difference between pay down and credit facility drawdown).
Thank you for the formulas of Unlevered FCF and Levered FCF.
I am preparing for a HF case study for which I need to build a simple CF statement starting from EBITDA. I am not sure which formula to use.
I was thinking of using the following formula:
Free Cash Flow from Operations reported by the company - Capex (which gives what I call FCF, and which seems to be different from Unlevered and Levered FCF) - M&A expenses - Dividends - Share Buybacks + Capital raise = change in net debt. Can you confirm if this is the right approach please or if I should use the Unlevered / Levered FCF formulas instead?
Second step of the case study is to calculate FCF yield as % of equity. Would it be correct to use my definition of FCF divided by market cap?
Thank you very much for your help
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